Introduction of Company
KFC is the world largest and most well known chicken restaurant. Every day, more than 12 million customers are served at KFC restaurants in 109 countries and territories around the world. KFC operates more than 5,200 restaurants in the United States and more than 15,000 units around the world. KFC is world famous for its Original Recipe® fried chicken — made with the same secret blend of 11 herbs and spices Colonel Harland Sanders perfected more than a half-century ago. Customers around the globe also enjoy more than 300 other products — from Kentucky Grilled Chicken in the United States to a salmon sandwich in Japan.
John Y Brown and Jerry Messy purchased KFC for USA for $2 million in 1964 that time KFC become a corporation. After five years, Colonel buys first 100 shares of KFC. In 1986, Pepsi Company purchased KFC. Pepsi company changed the logo from Kentucky fried chicken to KFC in 1991 and then in 1992 KFC 1000th restaurant opened in Japan and in 1994 9000th restaurant in china. KFC is the part of Tricon global restaurant. Tricon global restaurant is the world largest restaurant group, with in nearly 100 countries around the world, which in turn was spun off in 1997, and has now been renamed to Yum! Brands.
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1.1
KFC in Pakistan
In 1997, KFC franchised with Gray Mecanza International and started work in Pakistan with its first branch in Gulsha-e-Iqbal, Karachi, Rawalpindi branch started work in 1999 and in Islamabad in August 2002 and now in Pakistan it currently has 69 branches operating in 19 major cities. It is operated by a Dubai based company, Cupola, which took it over in 1999 with 4 major outlets. Major competitors include McDonalds, Nandos, Hardees, AFC, HFC, Fri chicks, Go chicks and Dixy Chicks when talking about similar products. As in industry, however, KFC’s competitors will include all fast food chains: McDonalds, Pizza Hut, Geno’s, Hardees, Cock n Bull, and Subway etc. KFC occupies a major position in the fast food industry, being the largest seller of chicken products in Pakistan. It captures 50 percent of the total fast food market in the country. KFC wore the title of being the market leader in its industry. Serving delicious and hygienic food in a relaxing environment made KFC everyone’s favorite. Since then, KFC has been constantly introducing new products and opening new restaurants for its customers. In Pakistan totally Chicken buy from Pakistani Poultry Forms, and also this Chicken is 100% Halal.
1.2
Nature of the Business
Kentucky Fried Chicken (KFC) – one of the most known fast food chains in the world. Quality and cleanliness (QSC) represents the most critical success factors to KFC’s global success. It is the fast food franchise so its nature of business is providing the fast food services. Its business type is “Business to Consumers”. KFC has large chain of consumers. According to KFC, “We are growing only with our customer.” KFC has great environment for their consumers and families. They are concerned about the comfort and satisfaction of their customers. That is why 40 million is need to open a single outlet. KFC is multinational company. They have outlets, almost in every country. So they have international customers all over the world.
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1.3
Current Products
Mighty Zinger Zinger burger Fish zinger burger Col. Fillet burger Salsa twister Macho’s burger Chicken burger Cheese Sub 60 twister Nuggets Hot wings Fries Milo Frothe Corn on the cob Arabian spice Chicken mania Dinner rolls Crispy chicken chunks Hot and crispy soup Soft Drink
Cola slaw Scope of wall Fruit salad Mineral /water Espresso Cappuccino
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KFC stands on “the Champs Program”
The CHAMPS Program
Champs stands for our belief that the most important thing each of us can do is to focus on the customer. It stands for our commitment to provide the best food and best experience for the best value. CHAMPS stand for the six universal areas of customer expectation common to all cultures and all restaurants concepts. These are:
Cleanliness Hospitality Accuracy Maintenance of Facilities Product Quality Speed of Service CHAMPS is the philosophy to ensure that the customer has the consistent quality experience in every restaurant, everyday, on every occasions and you will be playing role in delivering CHAMPS to our customers.
1.4
Size
KFC is part of Yum! Brands, Inc., the world’s largest restaurant company in terms of system restaurants, with more than 36,000 locations around the world. The company is ranked #239 on
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the Fortune 500 List; with revenues in excess of $11 billion. KFC specializes in Chicken Based Products. In Pakistan, It currently has 69 branches operating in 19 major cities. It has high sales volume as they have great turnover. New outlets are being opened because they have greater sales volume (as per day worth 4.5 million is being consumed). Presently KFC has provided employment to over approximately 1200 Pakistanis, which adds up to 6000 individuals directly dependent on KFC Pakistan.
1.
Strategic Issues
Through an analysis of the strengths, weaknesses, opportunities, and threats of KFC, the following strategic issues are identified: 1. How would KFC maintain a market leadership in the Pakistan fast food industry? Pakistan’s fast food franchise industry is still unsaturated and is in its growth phase. There is a lot of room for firms to enter and be profitable. As barriers to entry to the industry as a whole are low, more and more firms as well individuals are entering in this business. For past few years the industry is growing at the rate of 10% annually. For Instance, Subway successfully entered the industry a few years ago and now Hardees has also followed suit. Although KFC enjoys a market leader position in the country but the issue now is that how can it maintain its market leadership and how can it gain a sustainable competitive advantage. 2. Consumer Health food trend KFC faces a lot of threat from its substitutes, especially with growing health concerns among its customers. Health and obesity issues associated with KFC food have diluted the trust people once had in them. It now faces an issue of catering to the changing needs of customer demands. GIFT Business School Page 1
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3. Occupies a Strategic Position KFC occupies a strategic position in the market. It is in a profitable business with maximum returns. However, the entire positioning is based upon one single secret recipe which if eluded by one of the competitors can cause serious damage to the brand. Therefore, the business though profitable is risky.
4. Limited variety of menu items KFC tries to project an image of “chicken expert” in the fast food industry for differentiating its products with other competitors. As one of KFC’s key competitors, McDonald’s also introduce chicken products. It is obvious that the competitive advantage of KFC may not be sustainable. The limited menu may be one of the main issues for KFC. Lack of variety of menu items, customers may not be attracted for consumption. Customers may go to other fast food restaurant which with more choices and combination. It may affect the competitiveness of KFC in the fast food industry. 5. Lack of communication between marketing and operation According to some of the KFC staff, they mentioned that there is lack of communication between marketing department and operation of KFC. Marketing departments may not give the details of new promotion and new products to the KFC operation or not clearly explain about the campaign. This leads to many problems for the operation. Operation team may be confused about the new promotion or coupons. They may not be able to explain the details to customers with enquiries. In addition, it could affect the efficiency and effectiveness of operation as crewmembers may not be familiar with the new GIFT Business School Page 2
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marketing strategies. They may not be able to up sell the products as the corporate wants. As a result, profit may be affected. 6. Fewer opportunities to expand its restaurants base (due to financial reasons) KFC is not a listed company because they say that they don’t need investors yet they say that they are not opening up new franchises due to lack of resources and jut focus on maintaining their current franchises. This can cause them harm because the market is still unsaturated and there is market which is still not being entertained. They need to open up franchises there to cater the demands of that market and gain market share which can be taken by competitor if it makes the move before KFC.
7. Lack of communication channel for customers The mission of KFC is “people be the first, customers be the focus”. It is found that KFC did not take a proactive approach on listening to customers and employees. There is no systematic customer survey for its products and services. It wholly relies on the branch managers and public relation officers to get the customers’ opinion. As customers of KFC, however, they would realize that it is not usual that managers and public relation officer would take the chance to ask for opinion. Although the website of KFC has a customer service comment box for customers to send suggestion. It may ignore those customers who are not computer users. In addition, its customer service hotline is not highly promoted. It means that it lacks communication channel between KFC and customers.
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1.
SWOT Analysis
50% Market share in Pakistan Global presence in 109 countries Extensive fast food franchise network with 68 outlets in Pakistan Quality Assurance; KFC has a product excellence system to ensure quality raw materials, packaging, equipment and new products that delight customers. In order to ensure consistent quality, KFC also executes ingredient and equipment specifications. Food is freshly cooked and fried chickens that are not sold for more than 45 minutes would be withdrawn from sale to ensure the food quality. Fresh ingredients are provided to the branches and hence it would ensure the quality of the food. Vertical linkages with value chain of suppliers; suppliers of KFC chicken is K&N’s and drinks are supplied by Pepsi, in Pakistan KFC’s secret Original Recipe® fried chicken — made with the same secret blend of 11 herbs and spices Colonel Harland Sanders perfected more than a half-century ago. Brand Equity because of being oldest and finest in Business Does not have any Core competitor In chicken serving Ranks highest among all chicken restaurants Chains for its convenience and menu variety Loyal customers Faces numerous advantages of being a Multinational Organization e.g. economies of scale.
Strengths
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Weaknesses
Lack of focus on Research & Development Imported raw material rise their prime cost Inflexibility of prices makes it unaffordable to middle class people. High rates on the prices as compared to the other brands selling same items may cause the customer’s shift.
Opportunities
Increase consumption of fast food has increased the market size Consumer prefer “All under one roof” in order to increase their sales turnover they can increase or add the served items They can open more outlets to get maximum market. They can capture more customers by decreasing the price of their products Updating their restaurants, Balanced menu, customer focus and Increase delivery service
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Threats
Competition from other international outlets – like Pizza Hut, McDonalds, Subway. Entrance of New competitors into the market; as barriers to entry to the industry as a whole are low, more and more firms as well individuals are entering in this business. For past few years the industry is growing at the rate of 10% annually. For instance, Subway successfully entered the industry a few years ago and now Hardees has also followed suite. High political instability/uncertainty. The deaths of political figures or any other such incident are a threat in a way that angry public burns the outlets. Such incident happened in Karachi. Health Trend away from fried foods; KFC faces a lot of threat from its substitutes, especially with growing health concerns among its customers. Health and obesity issues associated with KFC food have diluted the trust people once had in them. It now faces an issue of catering to the changing needs of customer demands. Changing customer demands Some international events badly affected the market of KFC in Pakistan like IRAQ and AFGHAN war and we know KFC is American based. Therefore, it creates a great impact on the performance of KFC. Diseases like bird flu cause the decreases in sales because customers don’t buy chicken or chicken related products in fear of this disease. Increasing inflation rates directly affect menu prices. Government has also increased the sales tax from15% to 21% that has raised the prices of these products.
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3.1
Competitive Analysis
The major competition in Pakistan market faced by KFC is McDonald’s. As KFC and McDonald’s offer similar type of products. A product offered by KFC is substitute a product offered by McDonald’s and vice versa. Factors that contribute towards a competition are: Price – Value for money is a major factor; when one company changes its prices in any product the other company has follow it to maintain its position. Quality of Food – As both KFC and McDonald’s are following their international standards, therefore it’s not a major concern Flavors’ – This is one major factor that contributes towards attracting customers. Different customers have different preferences. Outlets – Number of outlets contribute towards market share which gives KFC an edge.
Market Share
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3.2
BCG Matrix ✔ Star
According to BCG Matrix, Management says that KFC is a star. The reason for this is its high market growth and high market share in the Pakistani market. ✔ Question Mark According to BCG Matrix, all small outlets like HFC, AFC falls in the question mark, because of low market share in the fast food industry of Pakistan.
✔ Cash Cows On the other hand McDonald’s and Pizza Hut are the cash cows because of their low growth rate and high market share. During past some years McDonald’s and Pizza Hut have lost their market growth because of the fact that they could not provide the taste according to the Pakistani culture. ✔ Dog Another direct competitor of KFC is Subway. According to BCG Matrix it is a dog. Some of the reasons that are responsible for its low market share and low market growth are the less expansion strategies being followed by the company. Secondly they are not focusing at all on all the major cities.
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3.3
Competitive Advantage
The competitive advantage of KFC is its position as the as the dominant firm. It currently enjoys 50% market share in Pakistan. Firm’s competitive advantage can be divided into two categories: “Advantages based on the firm’s position” and “Advantages based on the firm’s capabilities.” KFC has positional advantage from heterogeneity within the industry. Other positional advantage includes KFC’s brand name. KFC has a largest number of outlets in Pakistan and they also enjoy economies of scale that is why they are able to generate more profits. It also enjoys tacit nature of capability based knowledge because of its secret original recipe of fried chicken of seven herbs by Colonel. It enjoys some advantages in defending itself such as reputation, economies of scale, cumulative learning, and preferred access to suppliers and channels.
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3.4
Sales Analysis
In Rupees
2010 Total Chicken Served in KFC Restaurant Annually
2009
2008
1.914 Billion
1.825 Billion
1.729 Billion
Total KFC Chicken Pieces Sold Annually
5.89 Billion
5.61 Billion
5.31 Billion
Total Retail Sales
8.9 Billion
8.49 Billion
8.04 Billion
Above table shows that the total chicken served in KFC Restaurant Annually in 2008 was Rs/1.729 billion, and in 2009 it increases from Rs/- 1.825 Billion. The increasing ratio was 5.35%. And in 2010 it jumps up to Rs/- 1.914 Billion with the increase of 4.65%. The total KFC chicken Pieces Sold Annually in 2008 was Rs/- 5.31 Billion, Rs/-5.61 Billion in 2009 and Rs/- 5.89 Billion in 2010 with the increase of 5.35%. Thus, the total Retail Sales of KFC in 2008 was Rs/- 8.04 Billion, 8.49 Billion in 2009 and in 2010 it increases from 8.49 to Rs/- 8.9 Billion with the increasing percentage of 5.35%. According to the management of KFC, their profit margin increases year by year.
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3.5
PEST Analysis
The Pest Analysis includes the political, economical, socio-culture and technological factors. These are described in detail as under.
Political Factors
The political factors include the government policies as KFC being a foreign company, but they have to obey the policies of the Government laid by the government of Pakistan, the country where the business activities are being carried out. KFC has handled this situation very tactfully and has obeyed the policies of the Government as prescribe by the government in order to run this kind of business. And the most important factor is the political instability. As in Pakistan, there are political crises faced by the government, these greatly affect the business of KFC. There are certain government regulations pertaining to the fast food franchise industry in Pakistan. Some of the requirements include Halal food production and selling, Corporate Social Responsibility, standardization checks, a test to prove quality before entering the market, renovation after every 8 to 10 years as mentioned per contract, tax duty and numerous other certifications, especially if operating on a large scale. . KFC complies with both of the requirements and provides Halal food and contributes to the local sales up to 95%.
Economical Factors
The economic factors includes the income of the people, KFC is going to target. Income is an important economical factor of the KFC. This factor decides which class KFC is going to target. In the early time of KFC, they were focusing on the upper class but they after some time changed their strategies and started to target the mass market by introducing some different kinds of meals and offers through which we can say that they target the upper middle & the upper level as well. In Pakistan there is a mixed economy so private organization easily perform their tasks within any given economic system of course, organization are influenced by a variety of
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economic features over which they have little independent control, such as inflation, interest rates and recession. Another important input to the enterprise is the nature of government fiscal and policies. KFC pays tax properly. Moreover, the Government of Pakistan receives over Rs.10 million per month from KFC Pakistan as direct taxes, and 95% of all food and packing material used in KFC Pakistan is procured locally, which sums up to a purchase of over Rs.35 million per month. So KFC plays an integral role in developing the economy of Pakistan.
Socio – Cultural Factors
Culture element includes the attitudes, values, norms, beliefs, behaviors and associated demographic trends that are features of a given geographic area. Multinational company faces the challenge to understand about the culture of that country where they work. To solve these problems KFC hire all employees of local area and now it is easy for them to understand about the culture of Pakistan. KFC management knows about that Pakistan is a Muslim country; therefore they use 100% Halal (Zibiha) chicken. KFC start their branches in those cities which are famous for food eating. Pakistani people like spicy foods, therefore KFC also provide spicy foods in Pakistan. KFC open its branches in advance cities of Pakistan like Lahore, Karachi, and Islamabad/Rawalpindi etc. In these cities mostly come out with their family because KFC mainly focus family.
Technological Factors
The technological factors include the Pace of change at a fast level. Pace of change means rate of change. KFC has strategy to introduce new technology whenever they think that it is a time to introduce new technology. Research & Development is also an important factor in the Technological factor. KFC always support the work of research & development in order to introduce the new technology. Capital formation means stock of machinery. KFC has a stock of machinery in order to run its business activities. In other words KFC has a good amount of Capital Formation. New techniques affect the quality of products and services in better way. Technology is very important in order to compete with the competitors. Organizations have an GIFT Business School Page 2
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eye on their competitors and also new techniques which their competitors used. Today the world going fast and market is globalize, new techniques comes in production and services departments. Although KFC and McDonald’s has same cooking machinery but KFC has efficient delivery system; they provide home delivery so quickly. KFC purchase machinery from Hanney Penny company, they are main suppliers of machinery throughout the world.
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3.6
Porter’s five forces
Porter’s five forces help to identify the key structural factors determining an industry’s competitive position in the market and its profitability. They highlight the strengths, weaknesses opportunities and threats along with their significance of the industry. Analysis helps to understand the current competitive position the industry occupies, animates positioning and clarifies areas of improvement. It will also help determine intensity of industry competition and the forces impacting strategy formulation.
Pakistan fast food Industry Analysis
KFC operates in the fast food industry. However, for convenience of understanding and application the group has carried out the analysis by considering KFC to be in two major industries, the first being fast food and the second being franchise. Hence, industry analysis is carried out by taking the industry to be fast food franchise.
3.6.1 Rivalry
Numerous competitors operating as fast food franchises exist in the market. Some of them are Nandos, McDonalds, Pizza Hut, HFC, AFC, Go Chicks, Dixy Chicks, Cock n Bull, Hardees, Salt and Pepper and Subway. These continuously fight against each other for a better position in the market. Rivalry among competitors takes place in the form of price competitions, advertising battles, product differentiation and increased customer services. Rivalry in fast food industry can be measured by analyzing the following: Number of competitors and size Fast food franchise industry in Pakistan consists of large number of firms having large variance in size and scale. Also, they differ a lot in prices, quality and service. So, they do not have to monitor all the firms for their actions and they can make moves without the risk of severe retaliation. However, few large players that compete against each other have resources for vigorous retaliation when some close competitor makes an important move. Hence, KFC’s competition is restricted to the size of the competitor. KFC will usually not consider what Cock n Bull or AFC is doing as important as to what GIFT Business School Page 5
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McDonalds or Pizza Hut is doing. Fierce competition might result in the form of various deals and price cuts offered specially in burgers between McDonalds and KFC, but on the whole rivalry in the industry remains moderate due to the existence of numerous players operating in various sizes. Industry growth Pakistan’s fast food franchise industry is still unsaturated and is in its growth phase. There is a lot of room for firms to enter and be profitable. As barriers to entry to the industry as a whole are low, more and more firms as well individuals are entering in this business. For past few years the industry is growing at the rate of 10% annually. For instance, Subway successfully entered the industry a few years ago and now Hardees has also followed suit. Due to industry’s absorbent and unsaturated nature competition for gaining market share is not bitter. Also, existing firms are increasing their number of outlets quite fast. Moreover, firms continue to introduce products and expand their product lines, hence, entering the new markets and targeting the new set of buyers. Hence, because the overall profitability from the industry is high, the rivalry is not very bitter and everyone gets its share of profits without diverging into severe price-wars and advertising battles. However, major players in the market, mostly equal in size, do get influenced by each other’s strategies and imitate quickly but that usually does not result in price wars. The rivalry thus remains moderate. High fixed and storage costs For the fast food franchise industries the fixed costs are usually high due to the royalty charges they have to pay to operate as a franchise. As for KFC, it takes the cooperation approximately 40 million to open a new outlet. Similarly, for its close competitors the costs are similar, as they are about equal in scale, size and operations. High sales, however, help these firms to earn sustainable profits. Storage costs are also high due to expiry and quality issues. This also places pressure to increase sales hence increasing marketing efforts and cutting prices which can drive profits low. Therefore, with the GIFT Business School Page 2
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fixed and storage costs being high, the firms compete against each other vigorously when storage and expiry issues arise. In these cases they might even indulge in severe advertising battles. Therefore, the rivalry increases. However, this is only the case with small franchise businesses. The firms following quality standardize do not usually face the problem of over capacity and hence do not have to incur costs of wastage of storage materials. The rivalry overall remains moderate. Differentiation and switching costs Product differentiation in the fast food industry exists but is not quite high and generally the products are perceived as commodities so their choice largely depends on price and service so the pressure to ensure competitive price and service escalate. Also, switching costs are quite low, as customers do not have to incur any cost for not buying from a firm. This industry’s customers are characterized as highly price sensitive so they can easily switch to a product that is like in quality and service but offered at lower price. Therefore, rivalry can become high. Competitors have to enter into price and advertising wars to attract customers. However, this usually happens in small franchises who are unable to differentiate their products either on price or quality or the by increasing the product line. Larger firms including KFC, McDonalds, Hardees, do get influenced by each other’s techniques to attract customers but always try to differentiate rather engage into bitter rivalry for a higher share, but, since competition is there, rivalry does exist. On the whole, the industry operates in conditions where rivalry is moderate. Increasing capacity in large increments In the mentioned industry, there are expiry issues so raw material is not purchased in bulk. KFC never purchases in large quantity that would result in overcapacity, because it has set quality standards and KFC never compromises on that. Overcapacity can result in huge wastage of raw materials because most of the raw materials are perishable. Hence, KFC do not face this issue so price cutting or chronic overcapacity is not a problem. Small firms like HFC might increase capacity, but in the long run they may suffer due to GIFT Business School Page 2
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quality, health and accountability issues. Firms following strict quality standards which the multinationals in particular do, usually do not face the problem, thus the rivalry in the industry resulting from overcapacity
remains moderate to low.
Diverse competitors and high strategic stakes There exist diverse competitors in the fast food industry as it consists of local franchises to huge multinationals. However, they are operating for a primary goal of making profits. So, no firm will make a move that might harm profitability. And almost all firms operating in the industry are profitable and no one would be willing to sacrifice high returns for some other reason. Apparently, no one is operating for some other strategic stake. This makes rivals to operate for single goal of profitability and hence their actions are not destructive for existing rivals. Therefore, KFC can easily make profitable decisions. KFC competes directly with companies like McDonalds on products like burgers and chicken variants. The products are the same, both provide fun meals and play place for children, both provide home delivery and both occupy prominent locations throughout the country. Rivalry thus among competitors is not bitter. However, both have differentiated these products on the basis of quality, taste, efficiency etc to position themselves. The strategies behind are different. Thus, the rivalry among them stays moderate. Exit barriers Exit barriers are economic, strategic, and emotional factors that keep companies competing even in times of low profits. The exit barriers for a firm in the industry remain moderate and so does the rivalry. Exit barriers can be explained as following: Specialized assets & fixed cost of Exit
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KFC does not have highly specialized assets and the nature of assets are such that they can easily be sold in the market. Therefore, it can easily sell its assets, as it purchases its fixed assets from Hanny Penny from outside Pakistan, and a buyer will easily pay the price to get these. Same is the case with other firms; assets usually do not create an exit barrier.
Strategic interrelationships It has high strategic importance as apart from fulfilling commitment of serving delicious, fresh and hygienic food and at the same time provides customer with the ultimate entertainment; KFC also plays in the economics development of Pakistan. Also, it has relationships with other companies like K&Ns and Cupola. For K&Ns, as K&Ns claims, KFC makes its products more acceptable to people because of KFC’s brand name and image. Cupola runs KFC’s franchises in Pakistan. Therefore, these strategic relationships might make it difficult for KFC to leave the industry. Firms in the franchise industry, hence, do face an exit barrier as per strategic inter relationships are concerned. Emotional Barriers KFC has high emotional barriers as presently it has provided employment to approximately 7000 individuals who will lose jobs in the case of KFC’s exit from the industry. So, management of KFC, or any other firm for that matter, might show unwillingness to make economically justified decisions due to loyalty to employees and fear for their own careers. KFC Pakistan is helping the people suffering from impaired hearing. It is helping them accelerate their career development, personal and professional growth. Cupola does it by empowering the special persons creating role models for the rest. KFC is providing a platform for the disabled youngsters of Pakistan. It strives to
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give equal training and promotion opportunities to the disabled based on merit and work performance. So, all these emotional ties can make it difficult for KFC to leave. Government and Social Restrictions This is a foreign country so government cannot impose any kind of exit restrictions on KFC and most of the multi nationals in business. However, economic effects will be negative and people will lose jobs. Moreover, the Government of Pakistan receives over Rs.10 million per month from KFC Pakistan as direct taxes, and 95% of all food and packing material used in KFC Pakistan is procured locally, which sums up to a purchase of over Rs.35 million per month. So, it might be discouraged to leave. However, there are no restrictions as such for KFC or any other franchise to exit the industry as far as it does not have any loans it needs to pay back.
3.6.1 Threat of Entry
New entrants will impose a threat to the existing players in the industry. These entrants may be potential entrants of acquisitions and will bring new capacity and resources and will lay foundations for enhanced competition for market share. These threats to entry are determined by barriers to entry along with expected reaction of the existing competitors. As the barriers set by the existing players increase, the threat of new comers to enter the market will decrease. Barriers to entry If the barriers to entry are high the threat of entry is low. Here, we will be focusing on the barriers to entry in fast food industry to which KFC belongs. Economies of Scale Economies of scale refer to reduction in unit price due to large volumes produced which can be a result of efficient production, marketing, purchasing etc. Although, when food products are produced at large scale economies of scale occur as fixed cost is spread over large volume of products, however, due to the nature of the industry products these economies are constrained by the volume of sales. Therefore, these economies of scale are no incentive for existing firms to keep new entrants away. Also, there are no by GIFT Business School Page 2
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products that are produced to earn incremental revenues that means new entrant would not have to face a cost disadvantage on this account. However, patents and established brand names provide large economies of scale as these can be shared across all company products. That means that new entry will only have to face disadvantage, if it wants to enter in direct competition with the established firms which are quite few in Pakistan. There exists no vertical integration across the industry but only few established firms like KFC itself. However, this would not keep the entrants away as the industry allows a lot of flexibility for size and scale with which new entries can set up business. In conclusion, economies of scale in fast food industry for established franchise business exists and may serve as an entry barrier, and so contribute towards building a threat to potential entrants.
Product Differentiation Product differentiation means that established firms have brand identification and customer loyalty. In Pakistan’s fast-food franchise industry, product differentiation does play a role in the growth of a business. Potential entrants will have to differentiate slightly to capture the attention of the customers. It is hence not very easy to enter and operate profitably. KFC has differentiated its products on the basis of “Food, fun & Festivity”, providing numerous variants of its special recipe in the form of chicken meals. It also offers various deals to differentiate its products from its competitors. Apart from the products it offers, KFC differentiates itself on the basis of the experience it provides: the right chicken, the right place and the right celebration! Hence the emphasis on ‘we do chicken right’. Seasonal discounts (Ramadan deals), sales promotions (Ufone, Standard Chartered, and Bareeze), birthday parties, chicky area and events organized for social responsibility (donations for SOS and FARYAD) are all ways of differentiating what it offers. KFC also differentiates service in the form of the dine-in experience, take away and KFC on Wheels. Thus product differentiation is a tool utilized by most businesses GIFT Business School Page 2
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but not to an extent to enter a blue ocean. The core products offered by all remain more or less the same; hence do not pose a high barrier to entry. Therefore, there is not a high threat to entry into the industry. Firms come in, differentiate slightly and run businesses without competing on product differentiation. Capital Requirements Capital requirements are the financial resources needed for investment to set-up the business and to compete. It may also include R&D, human resource and marketing costs to differentiate and overcome brand loyalty of competitors. In this industry, capital requirements for entry are high because franchises usually require a lot of set up cost, specially the royalty they have to pay on land. Furthermore, for penetration in the market, it might have to incur some amount on marketing and advertisement for not only awareness but differentiation. Thus, the capital requirements are huge: setup, plant and equipment, management and employees, suppliers, production, marketing and promotion etc. Therefore, the capital for entering the industry is a barrier to entry and poses a threat to new comers. Access to distribution channels Distribution channels include retail and wholesale firms that would help distribute products to end users. In the franchise industry finding an appropriate place for the restaurant, sometimes becomes an issue, but mostly it remains at a low scale. All new entrants if they have the required capital and resources do find a place to set their business up. So, access to distribution channels cost for new entrants is low, however, established firms go to an extent of building their strategy on their distribution network. To come and grow as large as them is surely impossible, but to find a place in the market as a newcomer is not very hard. Hence, the barrier remains low ad the threat high. Cost disadvantages independent of Scale Competitors might have cost advantage based on several other factors independent of their size and economies of scale: GIFT Business School Page 2
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✔ Proprietary product technology: On the whole, the industry has got no product technology that would make a real difference in products offered or the way they offer. However, there exist some established firms that have patents for some recipes. For instance, KFC has a secret recipe. ✔ Favorable Access to raw materials: Raw materials for this industry include buns, bread, chicken, oil, flour, spices, vegetables etc. These materials are easily available locally. Their procurement is not a hard task. ✔ Favorable Locations: Fast food franchise market in Pakistan is still much unsaturated and room for finding favorable locations is high. A glance at urban areas of Pakistan and fast food restaurants located there shows that a lot of markets are still not served. In other words there are enough people in urban Pakistan for any restaurant to survive. New entrants can easily secure for them a favorable location as shopping malls and markets continue to expand. Therefore, this barrier does not necessarily serve as shield against new entrants. Entrants can easily enter the market and find a favorable location for them. ✔ Learning or Experience Curve: Because this is food-based industry, the more you cook the more you master it. Moreover, those who are serving in the industry for so long have more experience about customers taste, buying behavior, switching options etc. than new entrants. For them, efficient production is easy; hence, unit cost also decreases. KFC has experience of 13 years of serving in Pakistan and more than seven decades in business. Moreover, it is the most experienced firm in chicken production. Therefore, experience curve might provide some barrier to entry and decrease threat of entrants. Government Policy
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There are certain government regulations pertaining to the fast food franchise industry in Pakistan. Some of the requirements include Halal food production and selling, Corporate Social Responsibility, standardization checks, a test to prove quality before entering the market, renovation after every 8 to 10 years as mentioned per contract, tax duty and numerous other
certifications, especially if operating on a large scale. In general, this barrier is moderate, since nearly all the companies in Pakistan produce Halal food and contribute to some extent to the local sales; they also fulfill other requirements since entering the franchise industry. Therefore, entry is not highly difficult, and new firms can enter the industry making the competition fierce and increasing the threat of entry. KFC complies with both of the requirements and provides Halal food and contributes to the local sales up to 95%. Food and packing material used in KFC Pakistan is procured locally, which sums up to a purchase of over Rs.35 million per month. Expected retaliation In past, retaliation shown by established firm has been quite low. For instance, recent entries like HFC, AFC, Subway and Hardees show the ease with which they entered. Also, no major moves against them have been observed from existing firms, because they are already well established or reaping profits. No doubt, all firms will compete against each other to grab the better share in the market, but sever retaliation has not been usually observed. Hence, expected retaliation is low and threat of entry is high. Entry-deterring price The prevailing price structure of huge companies like KFC is a balance of the value provided with the associated cost. Entrants will either have to come up with a similar structure, which suggests providing quality product for a high price. However, most products already exist in the market and so anything provided by the entrant would have to be well differentiated to motivate customers to pay the high price. Since KFC had in house baking facility and an efficient value chain network, it can afford to offer products at a reasonable price; now targeting the middle class as well. In contrast a developing GIFT Business School Page 3
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business cannot afford to offer similar prices for equally good products, hence will suffer a loss. The entry deterring price is thus high and imposes a major barrier to entry. The threat of entry hence becomes low.
3.6.3 Bargaining Power of Buyers
KFC as a buyer or the customers of KFC can compete in the industry by forcing down prices or demanding higher quality and more incentives. The following factors determine the bargaining power housed by the buyers: Concentration of buyers KFC has a large customer base. Its revenues are not dependent upon the buying power of a single customer. Hence, the customer buying power is low unless a major action of the company causes distress to a group of buyers like the incident of opera coupons, where the customers got upset by the non-functioning of the coupons and KFC has to reimburse them along with a public apology. Buyers always hold sufficient power to bargain with the firm. However, if the customer base in large, the sales and profitability is not affected by retaliation by a small group. If the group is large however, the bargaining power increases. Price sensitivity The population in Pakistan is price sensitive; people would rather go for similar product selling for fewer prices than buying an expensive one. Also, there are lots of alternatives to within and outside the fast food industry as a whole. While a brand loyal customer may pay whatever price KFC asks for a customer looking for just good fast food would go to a place where his need is satisfied with the least amount of cost incurred. Hence, price sensitivity gives a lot of power in the hands of the buyers. Products are undifferentiated Products in the fast food remain undifferentiated, as discussed before. Marketing efforts help differentiate the products a bit and build brand awareness; it does not help customers GIFT Business School Page 2
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lock up with the firm as they can find similar products elsewhere. There are some firms offering a different range of products, like Subway, who have managed to differentiate their products from the rest of the industry, targeting the health conscious people. However, if we talk only about KFC and other chicken specialists, the products remain more or less the same. Taste, in the Pakistani market does matter, but the prospect is not strong enough to stop people from switching. Everyone is willing to go and try food from a new comer. Therefore, as the differentiation itself, the bargaining power also remains moderate. Switching costs or substitution costs There is no monetary cost associated with switching from KFC. As discussed earlier, switching costs depend upon buyer behavior: their extent of price sensitivity or inclination towards preferred taste etc. Those emotionally connected with it might suffer switching cost of psychological nature concerning their emotional attachment with the brand. However, that does not necessarily decrease their bargaining power as they still can switch to other brand at their discretion. Therefore, the bargaining power of a single buyer is not much, but on the whole they have got bargaining power based on their buying behavior, price sensitivity and low switching cost
3.6.4 Pressure from Substitutes
Substitutes are the products that can perform the same function as the industry product. For fast food the substitutes are home-made-meals, ready- to -cook meals offered by Knorr, Mon Salwa, K & N’s Chicken and local vendors, other restaurants as they could choose anyone of these foods over fast-food. Moreover, increased health consciousness has lead people to switch from fast food to health oriented food as offered by Subway or made at home. Switching costs When a customer switches from a product to its substitute, then he has to bear a switching cost. If the cost is high then the probability of customer to switch will be low. In the industry, there is low switching cost as customers do not have to incur any GIFT Business School Page 2
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additional cost to switch from a product. Therefore, there is increased pressure of substitutes because customers can easily switch from products on the basis of low prices. In the market there are numerous substitutes available for fast food. Firms like K&N’s and Menu offer Ready-to-Cook meals. The long range of products offered by these firms provides best substitutes for KFC. In price sensitive market like Pakistan, products of comparable quality with low price attract customers. Same is the case with KFC; the substitutes available have low price, comparable quality and long expiry life than the products of KFC. Moreover, local restaurants and cafés also deal as substitutes of KFC. Health and obesity issues keep rising which again push people towards healthy eating and fast food is not considered to be one. On the whole, the switching cost remains low and pressure from substitutes high. Buyer inclination to substitutes Buyers have greater inclination towards substitutes because they are considered healthier and more health conscious people would rather move to other substitutes. KFC faces this threat, because it can lose its loyal customers as health consciousness and obesity issues increase. It has made efforts by advertising and launching its trans-fat meals which have low fat content. Nevertheless, fast food remains as such and people refrain from eating it especially if advised by a doctor. The buyer inclination towards substitutes thus increases, increasing the pressure from substitutes too. Substitute’s price-quality trade-off Analysis of substitutes shows that most of the products have attractive price-quality combination. Also, range of products at different prices is available. Hence, price-quality combinations offered by substitutes may tend to motivate customers to shift, especially with increasing health concerns. So, KFC has to face the pressure from the substitutes available in the industry it belongs to. Although, KFC claims that it provides quality chicken based on secret recipe that no else has it, has already been replicated to an extent,
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by its competitors. So, it can increasingly lose its customers due to above mentioned factors. The pressure from substitutes hence rises.
3.6.5 Bargaining Power of Suppliers
Suppliers of KFC include K & Ns, Pepsi Co, Hilal, Nescafe and bread and buns are produced internally. Marination is imported from California, India and Dubai. The suppliers within Pakistan can compete in the industry by raising prices or reducing quality of produced goods or services. Supplier concentration In Fast food industry there are lots of suppliers available as the raw materials needed for the end products are widely available across Pakistan. Firms can easily switch suppliers. Overall, supplier concentration of chicken in Pakistan is low, but drinks suppliers are concentrated. So, the bargaining power differs across different vendor industry. However, KFC produce bakery products in-house. However, Suppliers of KFC chicken is K&N’s and drinks are supplied by Pepsi, in Pakistan. As for chicken other alternatives such as Zenith and Menu are there. KFC has to rely solely on Pepsi for drinks because there is no other quality supplier except Coca-cola that is the major supplier to McDonalds. Hence, the bargaining power of Pepsi is high. It is difficult for KFC to find an equivalent supplier. However, both being multinationals benefit from each other. K & N’s too, being certified for quality and Halal food possesses some bargaining power but options are available and in the case K & N’s is the beneficiary; to be associated with a huge company like KFC. Amongst all the suppliers, maximum bargaining power is with Pepsi, also it is strongest multinational. K n N’s come second. Recently, a firm is said to launch which will provide chicken to the restaurants at a much convenient price than K n Ns, and at the same quality. If the firm is successful, it might hurt the bargaining power which K n Ns possesses.
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Size of supplier In industry there are suppliers of different sizes. Smaller the size of certain supplier lowers the bargaining power of the supplier. Pepsi is huge and won’t be affected if KFC stopped buying. KFC on the other hand cannot afford to let go of Pepsi, especially when Coke is already serving McDonalds and various other competitors. Not that Coke will refuse to supply to KFC, the firm itself will prefer to be different from its major competition. KFC is major buyer of K&Ns which would not want to lose partnership with KFC, especially when new chains like Zenith and Menu are coming up. Also, affiliation with KFC makes it more acceptable to people. On the other hand, KFC does not have an option to buy from a well known and certified chicken supplier. Zenith is new and Menu is also not as large and popular as K n Ns. Thus, suppliers overall do possess bargaining power. Uniqueness of service/Product The products and services offered by the suppliers are alike as the products they supply are naturally produced that they do not produce artificially. So, the uniqueness of the products and services is not there. However, KFC have choice to buy from big chicken suppliers like Zenith, Menu and Knorr, they are not perfect alternatives for KFC suppliers, because K&Ns have better standard and it is HACCP, it helps build KFC’s image as Halal, and it also got brand of the year award in 2009. All these factors make it best for KFC’s brand image. These factors can make K&Ns stand apart and give it some bargaining power. Pepsi too, of course, is unique in what it offers. Halal on the other hand has no uniqueness in service. KFC could easily shift it for Knorr or National. Hence, the suppliers providing some uniqueness have more right to bargain than the others. Switching costs to KFC
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KFC faced the issue of not providing halal chicken some years back, which deteriorated its image. But due to its present supplier, K & N’s, which is largest Pakistan-based company and known for best practices for slaughtering but also follow stringent quality standards has regained the trust of public. Indirectly KFC has based its halal chicken on K & N’s brand name. So, switching cost for KFC can be higher if it switches from K&Ns and even Pepsi, for both brands complement each other. These factors raise bargaining power of its suppliers. Threat of forward integration Forward integration by suppliers can pose a major threat to the company to which it is supplying, especially when not many alternatives are available. K & Ns can start their own restaurant and fast food chain. This may pose a threat to KFC’s supply of chicken in Pakistan and thus gives some bargaining power to the supplier.
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3.7
Value Chain Analysis
Primary activities are the sequence of activities through which raw materials are transferred into benefits enjoyed by customers. While support activities provide inputs that allow the primary activities to take place which in turn improve coordination across and achieve efficiency within the firm (Hill and Jones, 1998). C.H.A.M.P.S. stands for cleanliness, hospitality, accuracy, maintenance, product quality and speed of service. It is found that KFC has its core competence in its C.H.A.M.P.S. operating system to ensure food quality, service standard to earn customers smile with more value, improved service and better facilities. In addition, by using Colonel Harland Sanders to build up its distinctive brand image makes KFC be one of the well-recognized brands in fast food industry.
Primary activities
✔ Inbound Logistics In Pakistan to ensure the quality of products, most of ingredients of KFC are imported from other countries instead of Pakistan. When the chickens have been seasoned, they would be transported to the branches in a daily basis. Fresh ingredients are provided to the branches and hence it would ensure the quality of the food. However, outsourcing of logistic service, it may increase the transportation cost and in turn would be added into the cost of food. It leads to an increase of the food cost. ✔ Operation The foundation of KFC relationship with franchisees is built up by the partnership pact. It states that it gets franchisee inputs and involvement before decisions are made. It is always mindful of franchisee economics in all it recommend by establishing clear, customer-based system performance standard and providing opportunities first and foremost to its current partners. In order to ensure the consistent food quality and service standard, it also builds a one system mentality at its restaurant support centers. GIFT Business School Page 1
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KFC has a product excellence system to ensure quality raw materials, packaging, equipment and new products that delight customers. In order to ensure consistent quality, KFC also executes ingredient and equipment specifications. Food is freshly cooked and fried chickens that are not sold for more than 45 minutes would be withdrawn from sale to ensure the food quality. It also has its brand standard product designs, such as distinctive packaging of the “Bucket” of chicken. The system with clear instructed procedures would effectively guide the staff to do operational work, hence it ensure quality consistence in each KFC’s branches. ✔ Marketing and Sales Brand excellence system of KFC helps to ensure continuing high Yum! Brands monitors and promotes the value of its brand in the market by clearly communicating the personality of KFC. By using animated Colonel Sanders to market the brand, it builds up a brand image of American style chicken expert in Hong Kong and adheres to its primary concept with friend chicken as core products. The slogan used is now “We do chicken right” and appears on poster advertising in newspapers and magazines. The website provides KFC with an additional marketing avenue to promote KFC’s extensive products and specials on offer. The site will allow KFC to further strengthen its icon and continue Colonel Sanders and the company’s spirit and heritage. KFC also creates a disciplined positioning strategy. It positions itself as an up-scale, eat-in and quick service restaurant that targets customers from 16 to 39 years old with emphasis on young age group including office workers and young executives. KFC usually advertise specific products with consistent campaign to pull those products together. Integrated marketing strategies would enhance effectiveness of promotion. ✔ Service KFC commits to delight every customer on every visit in every restaurant. For its customers, it is obsessed to go the extra miles to make them happy. In order to develop restaurant excellence system, Yum! Brands provide supporting programmes needed to run a restaurant and satisfy customers. KFC has to follow global operating standards, C.H.A.M.P.S. to define the restaurant excellence. GIFT Business School Page 3
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Support activities
✔ Procurement The franchise agreement provides for buying approved equipment, service ware and the cooking spices from KFC approved suppliers. With Centralized distribution of food purchasing and ware provider, this gives KFC great strength as quality could be ensured. Cost control could also be achieved as KFC purchases their supplies in bulk directly. ✔ Human resources management Although human resources management is carried out on a decentralized basis for recruitment and hiring operational staff, KFC does provide training for the management team. They would be hired in a centralized basis by the Head Office in Karachi and Lahore. KFC trains management for people planning process to identify and plan staffing and development needs. Restaurant human resources tool kit assists managers for human resources issues at restaurant level. The training program would provide practical practices and useful information to staff. It could ensure quality staff to provide quality services. In its mission, KFC believes in people, trust in positive intentions, encourage ideas from everyone and actively develop a workforce that is diverse in style and background. It celebrates the achievements of others, coach and support employees. It also executes with positive energy and intensity within the company and stay away from bureaucracy. “Team together, team apart” indicates that it practices teamwork after collaborative debate. In each branch, there is a C.H.A.M.P.S board to recognize employees who are able to perform up-to-standard services. ✔ Infrastructure
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In order to assist the restaurant planning and management practices, KFC starts with a strategic analysis of the opportunity by market development strategic plan. KFC maps demographics to determine where to develop and identify restaurant locations and provides asset management to determine the optimum concept mix and number of locations. Construction and project management by Yum! Brand helps to design and build individual restaurants. With market development system of Yum! Brand, that KFC would try to locate in convenient location (Steele, 1996).
1.
1.1
Stakeholder Analysis
Internal Stakeholders of KFC
Managers Managers of KFC want the company to succeed Better chance of promotion. They know that Successful Company may reward them by paying them higher salaries, giving them a bonus, Better fringe benefits and if company fails they could lose their job. Employees Employees of KFC want the company to succeed more likely to get better pay, chance of promotion, Better facilities. Because they know if the KFC fails, then company will threaten their jobs, Freeze their pay, and possibly cut their wages. Suppliers KFC has numerous suppliers among which K & N’s supplies the major chicken to KFC and those chickens are further processed to serve into their chain of restaurant all over the Pakistan. Proper steps and methods are applied to evaluate the suppliers and their products as suppliers largely affect the overall operation and business of KFC. Suppliers
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must want the company to succeed to get more orders for them and more success for their business, as KFC is the supplier’s main buyer of their chickens in huge mass.
1.1 External Stakeholders of KFC
Customers Customers do have a say in the working of the brand they are so loyal to. No company can afford to lose its customers. Although, the customer base is huge and one single customer does not have much bargaining power, KFC tries to listen to each and every buyer via feedback and opinion cards. Mass customization is what KFC is trying to do to make all customers happy thus it makes it a point to do whatever is possible to cater to the needs of the customers. Customers continue to return to the KFC because of the good quality and same taste of their food products. KFC has many fans and continue to go to provide better customer services. KFC provides their customers best quality, good services and they always introduce innovative products to attract their customers. That’s why customers of KFC are loyal. KFC has high emotional barriers as presently it has provided employment to approximately 7000 individuals who will lose jobs in the case of KFC’s exit from the industry.
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Government Government is the external stakeholder of the KFC i.e. when a KFC business succeeds; the more profit the business makes the more taxes it pays. The Government of Pakistan receives over Rs.10 to 11 million per month from KFC Pakistan as direct taxes. But if the business of KFC drop off then workers are made unemployed. Presently KFC has provided employment to over 1200 Pakistanis, which adds up to approximately 6000 individuals directly dependent on KFC Pakistan.
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Recommendations
Product Differentiation
KFC faces a lot of threat from its substitutes, especially with growing health concerns among its customers. Health and obesity issues associated with KFC food have diluted the trust people once had in them. Hence, the reason, substitute pressure is there. KFC has tried launching salads and promoted production using vegetable oil in the past in foreign companies. It should expand its product line and add variety into its served items to cater the demands of this market in Pakistan. KFC chooses differentiation strategy by emphasizing the preparation of food with high quality ingredients as well as unique recipes and special seasonings to provide appealing, tasty and attractive food at competitive prices. As the diversity of products of its competitors, it is suggested that KFC should provide more innovative food products in order to gain its competitiveness in the fast food industry. It may increase the variety of menu products and give customers more choices. Different packaging of its menu may also increase the variety of menu. So, KFC should try and differentiate its products on other lines than only chicken to capture other segments in the fast food industry. Product differentiation in the fast food industry exists but is not quite high and generally the products are perceived as commodities so their choice largely depends on price and service so the pressure to ensure competitive price and service escalate. Also, switching costs are quite low, as customers do not have to incur any cost for not buying from a firm. This industry’s customers are characterized as highly price sensitive so they can easily switch to a product that is like in quality and service but offered at lower price. Product differentiation means that established firms have brand identification and customer loyalty. In Pakistan’s fast-food franchise industry, product differentiation does play a role in the growth of a business. Potential entrants will have to differentiate slightly to capture
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the attention of the customers. It is hence not very easy to enter and operate profitably. KFC has differentiated its products on the basis of “Food, fun & Festivity”, providing numerous variants of its special recipe in the form of chicken meals. It also offers various deals to differentiate its products from its competitors. Apart from the products it offers, KFC differentiates itself on the basis of the experience it provides: the right chicken, the right place and the right celebration! Hence the emphasis on ‘we do chicken right’. However, the entire positioning is based upon one single secret recipe which if eluded by one of the competitors can cause serious damage to the brand. Therefore, the business though profitable is risky. Products in the fast food remain undifferentiated, as discussed before. Marketing efforts help differentiate the products a bit and build brand awareness; it does not help customers lock up with the firm as they can find similar products elsewhere. There are some firms offering a different range of products, like Subway, who have managed to differentiate their products from the rest of the industry, targeting the health conscious people. However, if we talk only about KFC and other chicken specialists, the products remain more or less the same. Taste, in the Pakistani market does matter, but the prospect is not strong enough to stop people from switching. Everyone is willing to go and try food from a new comer. So KFC should do differentiation. They should also try the local desi taste addressing the desi food lovers, thus it will help to increase their market share.
Better communication channel
Lack of communication in the operation would lead to many problems. Inconsistency of products and services may occur due to misunderstanding of different internal departments. It is therefore recommended that KFC should provide more communication channel for gathering opinion so as to improve the service quality. Daily briefings may be held by branch managers in order to keep crewmembers knowing up-to-date information in a timely manner about the operation, promotion and direction of KFC. It may help to improve the communication between marketing and operation and hence minimize inconsistency of service in the restaurant chain. Informal tasting of new GIFT Business School Page 2
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products for employees may also help to gather opinion on how to promote the products as crewmembers directly contact with customers. They may be the direct source to gather customers’ opinion about products. It therefore may save marketing budget to promote on unpopular menu items and concentrate on public accepted food products and in turn enhance sales.
Enhancement on value of product and services
As shown in the strategies of KFC, it tries to minimize the costs, the decentralized trainings for crewmembers, the bulk purchase of production ingredients and materials and so forth. However, as the costs of food products are high, KFC may not be able to decrease price of its food products to maintain its competitiveness in the fast food market. In the other words, cost leadership is not a business strategy that it mainly takes. Instead of competing on price, it is suggested that KFC should enhance the value and maintain the quality of its products and services. Bigger portion of food may eliminate the expensive impression for its products. Quality is always something that customers look for. With unique recipe and tasty chicken as well as other innovative menu items, KFC may have more sustainable competitiveness achieved by its differentiation strategy.
Adopt different pricing strategy to attract the customers
Price is always a primary concern for the customer; therefore, they should adopt certain strategy to attract the customers. And it can only be done by lowering the prices. It could be by introducing some discount packages for families, employees, students or regular customers. The membership card can be used to provide certain extra value to the customer. It can gain sustainable competitive advantage by either cost or differentiation. If you have cost advantage you can cut your prices which will generate high sales volume and this will ultimately result in higher profits. You can get cost advantage because of economies of scale. If firm achieves differentiation, it can charge premium prices and gain higher margins. GIFT Business School
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Environment friendliness
It can develop a competitive advantage for itself by introducing environment friendliness concept as it has been introduced in Northampton USA. The restaurant is designed to environmental goals that include cutting energy and water consumption by 30% and reducing CO2 emission. Other than this is an effort to reduce its packaging by 1400 tons, KFC is now switching from cardboard to recyclable and biodegradable paper wrapping for some its products. It can start producing its own biodegradable paper and reduce cost due to economies of scale.
Geographic Incumbency
As far as placement of the products is concerned, it is an important factor, for a company to increase its market share, by targeting the right customer. KFC needs to have more outlets, at commercial areas. It will help to target the actual as well as the potential customers. Mobile outlets may be an effective addition as well. Geographic incumbency can be another strategy by which it can gain advantage. Pakistani fast food market is still unsaturated and there are some urban an most of rural areas where there is no outlet to serve this need so KFC can use geographic incumbency advantage here and open up outlets in these areas, fulfill the demands of this market and increase its market share.
Promotional Campaigns
KFC has large customer equity, but being a market symbol, a company should strive for having more actual customers. KFC should work for having more solid marketing departments. They should organize and run the proper advertisement campaign. It would definitely be an incremental factor for their sales. They can also use the brand promotions. They can set up the promotional campaigns. All they need is an effective marketing department to
facilitate t he promotional activities.
Ways for gathering customer feedback
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As mentioned in marketing strategy, marketing team relies on customers’ feedback for choosing their marketing promotion. Customers’ feedback means high sale volume and positive sales revenue. It, however, may not reflect the positive customers’ feedback on sales. Whenever a new product is out in the market, it may lead to sudden sales increase of that particular product as customers may want to try something new. However, it may not mean that the product is popular because product may be a fad. It therefore is suggested that marketing team in KFC should carry out more comprehensive market researches on product development. Branch manager or public relation officers could take a chance to communicate with customers in the restaurant and collect their feedbacks on the products as well as services. To increase the response rate, coupons or other souvenir could be given to customers. Employees are always one of the sources to gather customers’ feedback. Informal meetings may be held for operation team in order to gather the customers’ response on new products and services. It would lead to a much more clear direction for product development rather than keep introducing new products with uncertain popularity.
Lack of Employee Training
Proper Training of Staff engaged in maintenance of service quality should be provided to deal all such issues at local level. According to the manager, sometimes an issue regarding the services happens. At present they are not focusing on the training in their some outlets, so they should provide proper training to their employees because in fast food: the service is within the minute.
Defensive Tactics
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✔ It can the raise the structural barriers by 1. Fill product or Positioning Gaps: They can fill these products gap by introducing a variety in their menu. They should include healthy food as consumers now a days are becoming health conscious. They can position their products through advertisements by carefully selecting their target market and using integrative marketing to fill the positioning gap. 2. Defensively increase the scale of economies: They can increase their scale of economies so that they can charge fewer prices to increase their sales volume and achieve higher margins. Economies of scale help to take cost advantage. 3. Defensively increase the Capital requirement: They can bring in more investors and upgrade their outlets. Open outlets in markets which have yet not been approached and take incumbency advantage there. 4. Foreclose alternative technologies: It’s a technological era and technology can help you gain competitive advantage. They should find and implement alternative technologies to get cost advantage and do differentiation .
Increasing Expected Retaliation by Establish blocking positions. (e.g. Price cuts) Price cuts can be done when you have cost advantage which can come from economies of scale, Vertical linkages with the value chain of suppliers and channels , geographic location and discretionary policies keeping in mind KFC.
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1.
Exhibits
Exhibit 1
SWOT Analysis Opportunities Weaknesses Strengths Threats
Competition from other international Cheap and easy Research of labor outlets Lack of focus onavailability& Development KFC’s secret recipe Entrance raw material Increase of New competitors Importedconsumption of fast food Brand Equity High political instability/uncertainty Consumer prefer “All makes Inflexibility of pricesunder oneitroof” unaffordable to Oldest and finest in Business Increasing inflation Expand their sweet products middle class people.rates High Goodwill Health Trend the Open more outlets from as compared High rates onawayprices fried foods to the other Does not have any Core competitor In chicken Changing Capture customer demands brands more customers by decreasing the price of serving International their productsevents badly affected Ranks highest among all chicken restaurants Diseases their restaurants, Balanced menu, Updatinglike bird flu Chains for its convenience and menu variety customer focus and Increase delivery service Loyal customers Interactive relationship marketing Advantages of being a Multinational Organization
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Exhibit 2
Michael Porter’s five forces
Low economies Highswitching of concentration Large costs concentration scale to small size Uniqueness High price of Moderate product buyer product high inclination sensitivity differentiationto low Moderate High capital High switching sensitivity product requirements costs towards price differentiation High access to High threat quality trade Low switching distribution of forward integration off costs Moderate government policies
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Exhibit 3
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KFC (Kentucky Fried Chicken)
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References
http://www.planetfeedback.com/kentucky+fried+chicken/menu+choices/infuriated+by+c ommunication+problems+at+kfc/316329 http://www.austrade.gov.au/Food-to-Pakistan/default.aspx http://thefinancialdaily.com/NewsSearchResult/NewsSearchDetail.aspx?NewsId=92048 http://paknet.net/expending-in-pakistani-food-sector/
http://www.kfc.com/menu/salads.asp http://www.kfcpakistan.com/ http://www.jang.com.pk/thenews/investors/feb2003/if.htm http://www.psopk.com/media/news_detail.php?nid=96 http://www.onepakistan.com/news/local/karachi/33848-KFC-Teachers-Convention.html Interview with the Marketing Manager: Muhammad Kaleem www.kfc.com GIFT Business School Page 1
Final Project
KFC (Kentucky Fried Chicken)
Competing on the Edge, Strategy as the Structured Chaos by Shona L. Brown and Kathleen M. Eisenhardt *———————*
GIFT Business School
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